Wednesday, April 13, 2011

White House Deficit Proposal: Only $42 Billion in Net Health Savings

Based on preliminary press reports, Peggy Lee might have written the President’s deficit reduction proposal – because many observers, upon reading it, may be asking “Is That All There Is?”

The White House fact sheet claims $340 billion in savings over ten years – “an amount sufficient to fully pay to reform [sic] the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.”  However, the President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years.  Assuming Congress utilizes the President’s proposed savings to fund a “doc fix,” the NET deficit reduction from the White House’s health proposals will be $42.4 billion – this when the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent in nine short years according to the Congressional Budget Office.  And the proposal does NOTHING to reduce spending on the $2.6 trillion new entitlement created under the health care law.

A slightly longer summary of the proposal’s health care details (such as they are available) follows below  – they include the new and old (i.e., those included in the President’s 2012 budget submission) proposals.  Details are not available for many of the proposals – most notably a new plan to reform Medicaid matching rates – as well as other efforts regarding delivery system reform.

However, the top-line numbers on the net deficit reduction from the health provisions are sufficient to disappoint those calling for the President to lead on comprehensive entitlement reform – because a “Where’s the Beef?” proposal will do nothing to solve the looming fiscal crises facing Medicare and Medicaid.

 

The New

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

Expanded Price Controls:  Expands Medicaid price controls to dual eligible beneficiaries participating in Part D, which according to the Congressional Budget Office’s March 2011 Budget Options (Option 25) would generate $112 billion in savings.  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

Medicaid Restructuring:  Proposes “replac[ing] the current complicated federal matching formulas” in Medicaid “with a single matching rate for all program spending that rewards states for efficiency and automatically increases if a recession forces enrollment and state costs to rise.”  Details and potential budgetary impacts are unclear, but it’s worth noting that automatic increases during times of economic hardship could INCREASE budget deficits rather than reducing them.  The proposal also discusses receiving recommendations from governors “for ways to reform and strengthen Medicaid,” but ignored the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

The Old

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  As proposed in the budget, the above provisions would save $18.4 billion.

Potential Fiscal Impact

Small Net Savings:  The White House fact sheet claims $340 billion in savings over ten years – “an amount sufficient to fully pay to reform [sic] the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.”  However, the President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years.  Assuming Congress utilizes the President’s proposed savings to fund a “doc fix,” that means the NET deficit reduction from the White House’s health proposals will be $42.4 billion – this when the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent in nine short years according to the Congressional Budget Office.